Excise tax calculation can get complex

Question: Regarding the half percentage point increase in the state general excise tax: How is the 4.712 percent figure charged to customers derived? How do you get .04712 as the "pass along" tax multiplier for Oahu?

Answer: We can thank the state Department of Taxation for explaining this in a news release last year, in advance of the city's decision to enact a 0.5 percent surcharge on the general excise tax to help fund its rapid transit project.

But we don't claim the explanation is a simple one.

Put very basically, "a business that passes on the extra 0.5 percent county surcharge tax must also claim and pay (the GET) on the extra 0.5 percent passed on" to customers on Oahu, said Sandra Yahiro, deputy tax director. "As such, the business is allowed to pass on the extra cost, and the math comes out to 4.712 percent."

The more detailed explanation is that while the GET is levied on a business's gross receipts, it is expressed as a percent of a customer's bill.

As explained in the news release: "Because gross receipts are defined to include any tax that the business passes on to the customer, the tax rate expressed as a percent of the price is greater than the statutory tax rate on gross receipts."

With the city's surcharge, the new statutory tax rate on gross receipts for sales on Oahu is 4.5 percent.

The 4.5 percent tax on gross receipts translates into a maximum visible pass-on tax rate of 4.712 percent, "when expressed as a percent of the price and limited to six decimal places."

Another way tax officials explained this:

Gross receipts consist of the tax (4.5 percent of gross receipts) and the price (95.5 percent of gross receipts).

The tax as a percent of the price is 4.5 percent divided by 95.5 percent = 0.047120 or 4.712 percent.

Again, because none of this is simple, the Taxation Department says a seller may choose to do one of three things:

» Nothing -- it may decide not to pass on GET on to their customers.

» It may choose to pass on to customers 4.5 percent of the cost to cover their GET and county surcharge.

» It may choose to pass on to customers 4.712 percent of the cost to cover the optimum amount of GET and county surcharge.

MAHALO

To all who came out to help raise funds to save Honolua. On May 18, the Micah Wolf Band and Howard Ahia rocked Longhi's until early the next morning, with a line forming at the door when we reached capacity! The next day, at Paradice Bluz, we had an all-star lineup with Hau Phat, Hwy 30, An Den and Lahaina Grown. Chris of Paradice Bluz has pledged a concert a month until Honolua is safe. Thanks to the generous time, effort and resources donated by these community-minded businesses and caring musicians, we are making great progress in getting the word out, as well as raising funds. -- The Save Honolua Coalition/ Tamara Paltin